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International Wealth Effects

  • Jiri Slacalek

    ()

    (Macro Analysis and Forecasting German Institute for Economic Research)

This paper presents a detailed investigation of the wealth effect for 16 industrial countries using the recently proposed technique that exploits the sluggishness of consumption growth. I argue that, compared to the widespread cointegration-based methodology, the approach I apply has better theoretical foundations and is more immune to parameter instability. Empirically, this new technique implies smaller magnitude of the wealth effect in the G-8 countries and larger size of the income effect. I also document that the wealth effect tends to be larger in countries with more developed financial markets and has decreased substantially in the last twenty years

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File URL: http://www.slacalek.com/research/sla06intlWlthE/sla06intlWlthE.pdf
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File URL: http://repec.org/sce2006/up.16135.1141154631.pdf
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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 425.

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Date of creation: 04 Jul 2006
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Handle: RePEc:sce:scecfa:425
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  1. Christopher D. Carroll, 2003. "Macroeconomic Expectations of Households and Professional Forecasters," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 269-298.
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  7. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246 National Bureau of Economic Research, Inc.
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  10. Christopher D. Carroll & Johns Hopkins University, 2006. "Sticky Expectations and Consumption Dynamics," Computing in Economics and Finance 2006 21, Society for Computational Economics.
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  12. John Muellbauer, 1988. "Habits, Rationality and Myopia in the Life Cycle Consumption Function," Annals of Economics and Statistics, GENES, issue 9, pages 47-70.
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  18. Karen E. Dynan, 2000. "Habit Formation in Consumer Preferences: Evidence from Panel Data," American Economic Review, American Economic Association, vol. 90(3), pages 391-406, June.
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  20. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-29, October.
  21. Martin Sommer, 2004. "Habits, Sentiment and Predictable Income in the Dynamics of Aggregate Consumption," Macroeconomics 0408004, EconWPA.
  22. Christopher D. Carroll & Misuzu Otsuka & Jirka Slacalek, 2006. "How Large Is the Housing Wealth Effect? A New Approach," Economics Working Paper Archive 535, The Johns Hopkins University,Department of Economics.
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  26. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
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